Consider the following statements.A. Average Fixed Cost (AFC) always decline with increase in output.B. Marginal Cost (MC) intersect AVC and Average Total Cost (ATC) at their minimum point.C. Learning Curve implies cost rises with accumulated output.D. In the long run, all costs are variable.E. Longrun Average Cost (LAC) is envelop of Shortrun Average Cost (SAC) curvesChoose the correct answer from the options given below:

Question

Prepp Team · Accepted Answer

Analyzing Firm Cost Statements

This solution evaluates the truthfulness of five statements related to firm cost behavior in economics.

Statement Evaluation

Statement A: Average Fixed Cost (AFC) always declines with increase in output.
This is True. Since Total Fixed Cost (TFC) remains constant, AFC (TFC / Output) naturally decreases as output increases.
Statement B: Marginal Cost (MC) intersects AVC and Average Total Cost (ATC) at their minimum point.
This is True. A fundamental principle in cost theory states that MC intersects both AVC and ATC curves at their respective lowest points.
Statement C: Learning Curve implies cost rises with accumulated output.
This is False. A learning curve demonstrates that costs typically decrease with increased cumulative output or experience due to improved efficiency.
Statement D: In the long run, all costs are variable.
This is True. In the long run, firms can adjust all inputs, meaning there are no fixed costs; all costs become variable.
Statement E: Long-run Average Cost (LAC) is an envelope of Short-run Average Cost (SAC) curves.
This is True. The LAC curve represents the minimum average cost achievable for each output level when all factors are adjustable, tracing the lower boundary (envelope) of various SAC curves.